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How to Save on Rehab Costs and Long Term Property Repairs

Most San Antonio real estate investors buy under market value San Antonio properties, rehab them and then rent them out.

I have several rental properties in my San Antonio investment portfolio, but I have found in the last year or two that construction costs are eating too much into my bottom line.

As the San Antonio real estate market is heating up, construction costs have gone up on some of my fixer uppers by as much as 50%! Rather than spending $10,000 to repair and rent a property, I was finding that I was spending $20,000 or more, and my net return was under 10% per year.

Because of higher construction costs, I am advocating more owner financing my San Antonio properties. Here’s how it works in a nutshell:

  • I buy the under market value San Antonio fixer upper for $50,000.
  • I do approximately $5000 in repairs on the property, which may include painting, cleaning, minor plumbing and electrical. Basically, I am doing enough repairs on the property so that I can sell it with owner financing to a blue collar worker and his family. They will be able to complete most of the remaining repairs.
  • By only doing $5000 or so in repairs on the property, I am able to save at least $10,000 in most cases in construction and rehab costs. This often will push my ROI to 14-15%.
  • Typical terms for the end buyer are 10% interest, $5000 down, no prepayment penalty, 30 year note.

The owner financing exit strategy has the added benefit of not having any ongoing repair costs, which is great for peace of mind and my bottom line.

In summary, the foundation of my buy and hold San Antonio property portfolio is properties owned in cash and owner financed to qualified buyers. It is the primary strategy I recommend to new investors who want to build passive cash flow.

Here’s a good property that will return 14-15% per year with $5000 only in rehab:

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  • Address: 224 Avondale Ave., San Antonio, TX 78223
  • Year Built: 1957
  • Description: San Antonio buy and hold investors – Happy New Year! Excellent cash flow opportunity with central AC/Heat. This is a big plus as you don’t need to spend to add it.  Has car port and tool shed. The neighborhood is in high demand, booming south San Antonio Market, 2 beds, 1 bath, 866 sqft, lot size: .16 acres, estimated repairs: 5K, clean/lawn maintenance/exterior paint. Max After Repair Value: 85K.
  • Cash Price on San Antonio Fixer Upper:  $49,900 CASH
  • Exit Strategy: Owner Finance with 5k in repairs: 5K down payment, $850.00 monthly PI/TI, 30 year amortization, 10% interest, Sales Price: 85K. NOTE: We recommend owner financing this property rather than renting; you will be able to save your cash outlays on the repairs by owner financing it rather than renting. Renting out this San Antonio investment property is possible, but at least another $10,000 of repairs will be needed. 
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How You Can Earn 12% ROI on An Under Market Value Property Without Repairs

Most under market value or wholesale property investors I know buy houses with mortgages and rent them out. I used to heavily purchase under market value properties and rent them out, as well.

However, about 10 years ago, one of my real estate investing mentors pointed something critical out to me: John, you’re in San Antonio TX. You have all these blue collar workers you are renting houses to. Why not just owner finance the under market value property to them and let them do most of the repairs?

Wow, what a great idea, I thought! Most of the time, when you purchase a whole sale under market value investment property, you spend $30,000 or more doing the rehab and then you have to work to find good tenants. And we all know some of the disadvantages of rental properties:

  • Leaking roofs, electrical problems, broken hot water heaters, busted toilets.
  • Damage by tenants
  • Tenants that don’t pay and stay in the property
  • Vacancies
  • Problems with property managers, not to mention the expense

I had all of these problems at one time or another with my 200 rental properties. However, in 2008, I started to convert all of my below market value rental properties to owner financing.

Here’s how I turned my renters into owner finance buyers:

  • I sent each renter a letter asking if they wanted to buy the below market value property.
  • People who wanted to buy it had to send me all of their financial documents so that I could properly qualify them per Dodd Frank rules.
  • People who did not qualify or did not want to buy the property left when their lease was up.
  • Those who wanted to buy the property put $5000 down and agreed to my terms – 10% interest, 30 year note, $600-995 per month PITI.

Once the occupants had bought the properties, they were responsible for all of the maintenance of the under market value whole sale property. I no longer had to be a landlord! What a great deal. Pure passive income every month and no landlording.

If I ever have to foreclose on the below market value property, I’m in TX, and it’s easy to foreclose here – a non-judicial foreclosure state.

And that, my fellow under market value investors, is how you can earn 12% per year on a below market value property and never have to do repairs. That is all I do in my wholesale property business in San Antonio TX now – owner financing. Below is a perfect example of how you can earn a high ROI without maintaining the property:

This distressed property sale was completed in August 2015. The market in San Antonio TX has changed greatly in the last year. The market is booming and prices are up across the board, even in fixer upper homes.

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$65,000 cash price, $15,000 rehab, resold for $99,900 owner finance, $1041 per month, 7 DOM, 12.9% ROI.

Still, we have CA investors coming into our fine city and buying property investment homes and making 12-13% ROI annually, with no property maintenance.

This property was purchased by a CA cash buyer in July 2015 at 1622 Alametos St. This house is in 78201, and is north of downtown. This region is seeing rapid growth and appreciation.

The investor bought cash, and we completed $10,000 in repairs in 3 weeks:

  • $65,000 cash price
  • $1500 carpet removal and adding wood vinyl in 3 bedrooms
  • $3500 HVAC
  • $750 for third bedroom conversion.
  • $750 for dumpster – clean out
  • $1500 two tone interior paint
  • $500 update five light fixtures
  • $1500 level front bedroom
  • $1500 closing costs

Total Investment: $76,500

Repairs were complete on July 31, 2015 and property was put on MLS. By Aug. 3, we had two full owner finance, price offers as follows:

  • $1041 per month
  • 30 year note
  • 10% interest rate
  • $5000 down payment
  • $99,900 final price
  • $216/mo. taxes/insurance

Investor’s total monthly income after taxes/insurance is $825.

Final ROI: 12.9%

If you have questions about owner financing property in San Antonio (one of the best cities to invest in real estate) or anywhere else, please contact me.